Older savers pull ahead in the 401(k) race

By Anne Tergesen

Americans may not be saving nearly enough to ensure a comfortable retirement, but the average 401(k) balance is up dramatically since the dark days of 2008 and 2009.

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Since 2009, he’s been particularly good to older savers.

According to Fidelity Investments, the average 401(k) balance hit $88,600 at the end of March. While that’s down slightly from a record $89,300 on Dec. 31, when the stock market was higher, it’s up 9.5% from a balance of $80,900 a year ago and up 92% from $46,200 in March 2009, when the market hit bottom.

For some investors 55 and older, the gains have been even better. On average, investors in this category saw their account balances rise to $165,000, up 9.6% from $150,500 a year ago and almost double the average balance of $88,700 in March 2009. But employees 55 and older with at least 10 years’ service at their current employer saw their account balances rise to $284,800, up 11.7% from $255,000 a year ago and more than double March 2009’s $130,700.

With the S&P 500 Index up 29% in 2013, about three-quarters of the account balance appreciation is attributable to the market, with the rest due to employees and employers putting more money into their 401(k) plans, says Jeanne Thompson, a vice president at Fidelity. Over the long haul, the division has been 50/50 – illustrating the importance of making steady contributions.

Still, Fidelity found that almost one-third of workers who have access to a 401(k) plan are not contributing. The company says employers should do more to encourage participation—via auto-enrollment—and to raise savings rates, via automatic increase programs, which ratchet-up employee savings rates by one percent a year until they reach the 10% to 15% rate that experts consider the key to a successful retirement.

Currently, employees in Fidelity plans save 8%, on average. But those who are auto-enrolled save just 5%, “in part because 73% of employers (auto) enroll employees at 3% or less,” says Fidelity. “Even with an average employer contribution of 4.4%, the savings rate for many auto-enrolled employees falls below Fidelity’s recommended annual total savings rate of 10% to 15%.” (For more on how auto-enrollment can be a mixed blessing for savers, see today’s piece by MarketWatch’s Andrea Coombes.)

Another piece of good news from the survey: At 4.4%, the average employer match is at a record high, up from 4% in March 2007 and 3.8% in March 2009. Employers, says Thomson, are starting to wake up to the notion that they must do more to “help prepare their employees for retirement.”

At the same time, among Fidelity clients with an individual retirement account (IRA), the average balance rose 11%, to $89,500 from $80,500 last year at this time.

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Encore looks at the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities, needs and priorities of people saving for and living in retirement. Our lead blogger is editor Matthew Heimer, and frequent contributors include editor Amy Hoak, writer Catey Hill, and MarketWatch columnists Elizabeth O’Brien, Robert Powell and Andrea Coombes. Encore also features regular commentary from The Wall Street Journal retirement columnists Glenn Ruffenach and Anne Tergesen and the Director of the Center for Retirement Research at Boston College, Alicia H. Munnell.